Funding for $20m project stopped in response to alleged corruption by local theatre working on the initiative.

The United States has cancelled funding for Pakistan's version of the children's television series "Sesame Street," saying it had received credible allegations of fraud and corruption in the production of the popular Muppet programme.

State Department spokesman Mark Toner said on Tuesday that the US Agency for International Development (USAID), which had contracted with Pakistan's Rafi Peer Theatre Workshop to produce the local version, had been notified of the corruption charges through an anti-fraud hotline.

"We did launch an investigation into the allegations. We also sent the theatre workshop a letter that terminates the project agreement," Toner told a news briefing.

Toner said USAID had originally allocated $20 million to produce the show -- which premiered in late 2011 and is known as "Sim Sim Hamara" in Pakistan -- and that about $6.7 million of this had already been spent.

The rest of the money has been terminated even though the investigation is still under way, Toner said.

Sesame Workshop, the non-profit that has brought "Sesame Street" and other children's programmes to more than 150 countries around the world, said it was "surprised and dismayed" by the allegations against the Rafi Peer Theater Workshop.

'Spiced up story'

"We trust that the facts will be fairly and fully assessed, and we will wait for the full report," Sesame Workshop said in a statement on its web site.

"Sim Sim Hamara" has aired weekly on Pakistan television in Urdu along with editions in four additional languages for regional broadcast. The project has also involved radio episodes, school fairs, and puppet shows and mobile screenings around the country, according to Sesame Workshop.

Faizaan Peerzada of Pakistan Children's Television, which was tasked with implementing the "Sim Sim Hamara" project, said the USAID portion had been due to end in September.

"After this, Rafi Peer will continue to run it with its own resources. And the spiced up story is a lie," Peerzada told Reuters news agency, referring to reports of the corruption allegations.

The Rafi Peer Theater Workshop, in its own statement, said the joint project was drawing to a close "with mutual consent" and that it was confident it could find alternate sources of funding to keep the program running.

Pakistan is not the only place where the Muppets have run into trouble. The Palestinian version of was hit this year after the US Congress froze USAID assistance programmes to the Palestinians following their unilateral efforts to gain admission to the United Nations.